How to Recover from a Short Sale

If keeping your home is not an option, a short sale allows you to escape the devastating consequences associated with a foreclosure. In a short sale, the lender agrees to let you sell the home for less than you owe. Although your liability is released, your credit score still will suffer. The drop is not as severe as a foreclosure, but it will lower your score and remain on your report for up to seven years. It is possible to recover from a short sale and even own a home again.

1

Secure stable housing. You will have to wait at least a couple of years before you can qualify for a mortgage loan again. Rent a home or stay with a relative in the meantime. Expect to pay a higher security deposit with a short sale on your credit report if you plan to rent.

2

Pay bills on time to improve your credit score. Keep your current accounts in good standing to lessen the impact of the short sale on your credit history. The exact number of points a short sale lowers your score varies, but a person with a few blemishes will feel a less substantial drop than someone with perfect credit.

3

Obtain a secured credit card to re-establish your credit if you do not have credit cards or loans. You set the spending limit with a secured credit card, and your available credit limit is equal to the deposit you pay. The deposit is not applied toward your balance but instead acts as collateral if you default.

4

Lower your debt-to-income ratio by paying down credit card balances and auto loans. If you plan to buy again, the lender will assess the amount of debt you have in proportion to your monthly income.

5

Save up a down payment. A down payment of 20 percent or more will cut Fannie Mae's time-wait penalty down to two years from seven.

About the Author

Jeannine Mancini, a Florida native, has been writing business and personal finance articles since 2003. Her articles have been published in the Florida Today and Orlando Sentinel. She earned a Bachelor of Science in Interdisciplinary Studies from the University of Central Florida.